Uncertainties, Concerns, and the Innovation Landscape: An Industry View Neal E Fearnot, PhD, FASA February 6, 2012

Uncertainties, Concerns, and the Innovation Landscape Uncertainties and Concerns Changing demographics Changing global economy Need for increased cost efficiency Increasing regulation Effect on Global Innovation Landscape More focus on ethics and compliance More focus on prevention, early diagnosis and intervention Less margin for innovation, more room for opportunists Conclusion: Synergies to avoid compromised benefit to patients 2

Uncertainties and Concerns: Changing Demographics 3

General Population Pyramids Pattern typical of growing society In the 1950s, more younger people relative to older people (20:1) Over time, people tend to live longer. Also over time, there are fewer younger/working individuals relative to older individuals (3-1). 4

Bulging Elderly Populations 15% Bulging Elderly Populations Japan – “upside down” USA – trending “upside down” http://www.census.gov/population/international/data/idb/informationGateway.php, accessed 17 OCT 2011 5

Demographic Changes and Health Care Policy 15% 15% 15% Demographic Changes and Health Care Policy Percent of population 65+ Age as a predictor of health care use – older individuals have more health issues. Demographic changes show the trends of the aging population relative to working individuals, who may be paying a greater share for the care of aging individuals. Japan/US Shared concern: How will a smaller working age population care for the health needs of a bulging elderly population? 6

Uncertainties and Concerns: Changing Global Economy 7

West to East Economic Shift “In terms of size, speed, and directional flow, the transfer of global wealth and economic power now under way – roughly from West to East – is without precedent in modern history.”  “…lower costs combined with government policies have shifted the locus of manufacturing and some service industries to Asia.” US/Japan traditional, global economic powers China and Middle Eastern economies growing Japan/US Shared concern: How will national economic struggles affect innovation? http://www.acus.org/new_atlanticist/economic-rise-east, accessed 17 October, 2011

Uncertainties and Concerns: Need for Increased Cost Efficiency 9

Cost Containment U.S. Provider cuts Enhanced fraud and abuse reform initiatives (US and UK) Bundled payments (ACOs), Value-Based Purchasing Demonstrations Independent Payment Advisory Board (IPAB) Debt-Ceiling 12-Member Committee vs. 2% across-the-board cut on providers More demand for clinical outcomes (HTAs). Demand for health economics data Global Austerity packages (Italy, Greece, Ireland, Spain) Hospital budget cuts (Austria) Tender/procurement mechanisms (Europe) Late payments procedures (Italy, Spain) HTA and DRG/reimbursement reforms Reference Pricing (Japan)

Uncertainties and Concerns: Increasing Regulation 11

Regulatory Challenges More hurdles to overcome and more uncertainties More delays in decisions and longer approval times More reviewers on fewer applications, some with inadequate training and knowledge; less management oversight Less predictable review During review cycle, concentration on more issues of less importance More clinical studies New requirements late in the cycle, without clear basis in science More demand for increased clinical safety & effectiveness data and other evidence from more stakeholders Japan/US Shared Initiative: Making efforts through “harmonization by doing”

Effect on Medical Device Landscape: More Focus on Ethics and Compliance 13

Managing Conflict of Interest Conflict of interest issues Best knowledge vs. undue influence Fair profit vs. undue influence Financial Disclosure – transparency Japan/US Shared Concern: How to balance conflict of interest issues to result in best treatment options for patients.

Effect on Medical Device Landscape: More Focus on Prevention, Early Diagnosis and Intervention 15

Improve Lives, Manage Cost Prevention through lifestyle improvements – Smoking – Obesity – Exercise Early Diagnosis – Screenings with emphasis on lower radiation content (e.g., ultrasound) Early Intervention – Minimally/less invasive diagnoses and treatments Japan/US Shared Concern: How to leverage prevention, early diagnosis and early intervention to impact costs within the industry, yielding increased funds for innovation.

Effect on Medical Device Landscape: Less Margin for Innovation 17

Decreased Margin for Innovation… Increased Financial Pressure on Innovation Price This is the Sample Column Chart slide. To create this particular slide, copy and paste the sample in the Slide Sorter view as follows: Select View / Slide Sorter Highlight the Sample Column Chart page and select Edit / Copy Place the courser where you want the new slide to be and select Edit / Paste Double-click on the pasted-in slide to return to Slide view To access the column chart, right/click on the chart and select chart object / open from the menu. This will open the chart in Microsoft Graph. You can make any changes to the chart and spreadsheet here. When you are finished making your changes, select File / Exit and return to… from the menu bar. THIS METHOD IS PREFERRED TO DOUBLE-CLICKING THE GRAPH AND OPENING IT IN POWERPOINT. Double-clicking the graph can sometimes reformat the sizes, colors, animations and fonts in your graph. Cost Time

Effect of Decreasing Margin for Innovation Decreasing margin of innovation for industry Decreasing patient access to new treatments

Conclusion: Synergies to Avoid Compromised Benefit to Patients 20

Summary Remarks Demographics require treatment of more patients at less cost Infrastructure for product development and clinical research is suffering due to policies and economics Current policies stifle innovation, especially for smaller patient populations Patients still want better therapies

Shared Commitment In the Japan and the US, physicians, regulators and industry professionals must support: Testing compliant with harmonized, globally accepted pre-clinical standards with a risk-based, least burdensome policy Global clinical trials compliant with harmonized, globally accepted clinical standards with a risk-based, least burdensome policy Improved regulatory review processes, including: Simultaneous premarket consultation Single protocol, multinational clinical studies Simultaneous premarket review Coordinated postmarket surveillance Willingness to work toward predictability and efficiency in the regulatory process, as we would in any sector of business Keep looking for synergies for the benefit of patients

Thank you! 23